How much should I spend on a bottle of wine? The straight answer is as much or as little as you want. Like cars, houses or stereo systems, wine prices range from the very cheap to the stratospherically pricey. It all depends on how much money you've got, whom you're trying to impress and how seriously you take your wine drinking.

The most expensive bottle of vino ever was a 1787 Château Lafitte (sic), said to have been the property of Thomas Jefferson and sold at auction in 1985 for £105,000. It has always amused me that the wine was subsequently placed under lights in a museum, where the cork shrivelled and dropped into the bottle, turning the contents into the most expensive bottle of vinegar ever. Hubris or what?

Cheapo wine, the stuff that people drink out of brown paper bags, starts at around £1.99, courtesy of a cut-price deal at your local supermarket. In fact, cross the Channel and you can find 'wine' for a quid. I once saw a cross-Channel shopper with a car boot full of something called Vino Collapso. Its alcoholic content must have been its only saving grace because the grapes used to make £1.99 wine are generally of very poor quality. This may explain why cheap wine gives so many people headaches. Very few people spend thousands of pounds on wine - or £1.99 for that matter. The average retail price in the UK was around £3.80 the last time I spoke to a clipboard-wielding statistician. This would seem to indicate that most of us are reluctant to part with more than £5 for our plonk, unless we're buying Champagne.

You generally get what you pay for in a bottle of wine, although several factors can inflate or deflate prices, such as a producer's name, reputation or marketing skills. Similarly, some countries and regions can charge more for their wines. If you don't believe me, try to remember the last time you paid more than £3.50 for a bottle of Bulgarian Cabernet Sauvignon - or less than £5.49 for a New Zealand Sauvignon Blanc.

Value for money is a slippery concept. You might consider a bottle of De Luxe Cuvée Champagne worth every bit of the £75 you paid for it, while I would consider it an extravagance. It's also worth bearing in mind that some wine styles are more expensive to produce than others. Pinot Noir, the grape of red Burgundy, is a good example. The drinkable starts at around £8 a bottle in my experience.

So how much should you spend on a single bottle? The first thing to remember that as duty (at £1.16 per 75cl) is a fixed cost, the more you spend the more, relatively speaking, the wine in the bottle is worth. By the time you've added packing, shipping, distribution and a retailer's margin, there's not much left to spend on the actual liquid in a £2.99 bottle.

Unless they're buffs, I always advise people to spend between £3.99 and £8.99 on wine. There are a few bargains to be found below £3.99 - Italy, Chile, Hungary and even France can deliver the goods on occasion - but the middle ground is the best place to shop. Above that, you're often paying for hype and reputation; below that, you might as well drink Vino Collapso.

Tim Atkin is The Observer's wine correspondent and a Master of Wine. Email your questions or suggestions to: tim.atkin@observer.co.uk